Too Big to Fail, So They Keep Growing

Wells Fargo, J.P. Morgan Chase and Bank of America keep on growing. Bank of America alone has had a 138% combined asset growth over the past year, after its acquisition of Countrywide and Merrill Lynch. Unfortunately this growth is leading to much fear concerning these major banks. As these banks grow, especially now that they know they have government protection, they are able to continue corrupt practices, in that they can't be punished because of their size and because the government believes that their fall would alone for even more American financial ruin. They can seemingly continue their growth process unchecked. On top of this it could lead to more problems for mid-sized banks because of larger banks' growing reach.

Closing in on a Deal for Hummer

It is said that a deal to sell Hummer to Sichuan Tengzhong Heavy Industrial Machinery could be finalized as early as next week. Despite a series of setbacks that the two companies have had since Tengzhong announced its intent back in June, the deal appears to be moving forwards. Of course the deal could still be overturned by the Chinese government, however executives seem hopeful. Tengzhong is expected to pay $170 million for Hummer, much less than the $500 million price tag GM had placed on it last year.

AIG Taiwan May Sell For Less than Hoped

AIG had been hoping to sell its Taiwanese insurance division for approximately $2 billion. The three possible offers that AIG has on the table are all currently below $1.5 billion. AIG was hoping to be able to sell their Taiwanese division so as to repay part of its $182.5 billion debt.

China's Neusoft Acquires Finnish Mobile Phone Software Business

Chinese information technology solutions company Neusoft is acquiring the mobile phone software development and testing business operations of Sesca Group in Finland. The purchase includes business units in both Finland and Romania which will be integrated with Neusoft's global mobile solutions business. Sesca has been active in the development of software for Symbian, Java, Microsoft and Linux mobile phone platforms.

Hummer Acquisition Still Not Approved By Chinese Government

The acquisition of Hummer by Sichuan Tengzhong Heavy Industrial Machinery Co. from General Motors has still not been approved by China's Ministry of Commerce according to Xinhua. In its application Tengzhong has reportedly only said that it plans to buy the Hummer brand and it is unclear if any technology or other assets will be purchased.

US National Debt to Double

The United States national debt is expected to double within the next 10 years. America's debt currently stands at around $11 trillion and is therefore likely to reach $20 trillion. The forecasts could significantly damage or affect the healthcare and economic reforms that President Obama is trying to establish. Despite this, the White House and the CBO both believe that the country's debt will begin to decline within the next three years.

Should Nokia and Alcatel-Lucent Merge?

As Ericsson is currently busy acquiring Nortel's assets, its smaller competitors are struggling to stay afloat. It is suggested that Nokia and Alcatel-Lucent should merge. The two companies being ranked as number 2 and 4 in their sectors are both struggling and would have a lot to gain by pairing up according to Reuters, however as they have seen many failed mergers in their industry such a merger may be unlikely. Yet a merging of the two companies would allow them to grow and compare to Ericsson while preventing Huawei from gaining too much busy in the industry thus causing the two to fail even more. Is it a good idea for the two to collaborate?

Intel Acquires RapidMind

Intel has now acquired software company, RapidMind. Intel plans to use RapidMind's programs so as to further develop and exploit their own technologies. Intel has recently been actively pursuing software companies, having purchased Wind River back in June for $884 million.

Proctor & Gamble to go to Warner Chilcott

The Procter & Gamble and Warner Chilcott have announced an agreement for the sale of P&G's global pharmaceuticals business to Warner Chilcott. Warner Chilcott is said to be paying $3.1 billion upfront for the pharmaceutical company.

Growth in Chinese Loans for M&A but Boost is Unlikely

Chinese banks have lent out over $13 billion yuan in the past year in order to finance domestic M&A as well as another $400 million to finance international M&A. There are applications for loans currently processing for another $19 billion in domestic and $440 million in international M&A. However, we shouldn't expect this to mean a boom in M&A coming from China, the government and many banks consider M&A to be a dangerous and risky field.

Yanzhou Coal Plans to Acquire Felix Resources in Australia

Yanzhou Coal Mining Co., the fourth largest coal producer in China, plans to acquire Felix Resources Ltd. in Australia for approximately A$3.4 billion ($2.9 billion) to increase its coal reserves. Felix Resources owns the Yarrabee, Minerva and Ashton mines and a stake in the Newcastle coal port in Australia.

Oracle Receives Justice Approval

Oracle Corp stated that it has received approval from the justice department to go forward with its acquisition of Sun Microsystems. The deal is worth $7.4 billion and is still waiting for approval from the European Commission.

Scripps Network Looking to Purchase the Travel Channel

Scripps Network, which already owns HGTV, has announced its interest in the purchase of the Travel Channel from Cox Communications Inc.

BBVA expected to gain Guaranty

Banco Bilbao Vizcaya Argentaria is expected to win a bidding war for Texas lending company Guaranty Financial Group Inc. Guaranty's sale is to come to a close on Tuesday. A win for BBVA would help the Spanish bank gain a greater footing in the States, after a their 2007 acquisition of, Alabama based bank, Compass.

Germany Wants Magna to Win Opel

Germany's federal government announced that it would be willing to contribute 4.5 billion euros in aid of Opel if they were to sell to Magna. An interesting move considering that the ministry has refused to state whether or not they would contribute any funds if Opel were to choose Magna's principle rival, Belgian financial group RHJ, in the sale of Opel. Will Opel take the bait?

Southwest Continues to Seek Acquistions

Despite having lost a the bankruptcy auction for Frontier Airlines last week, Southwest Airlines' CEO has stated that the airline would still be interested in acquiring other airlines. This is in direct contrast to the company's prior record of retreating from acquistions, prefering a slower growth strategy. However, as the company may end up in the red for 2009 it is possible that they have decided to take a riskier approach so as to reach a profit.

Sinopec Completes Acquistion of Addax

In China's largest ever foreign takeover, Sinopec has acquired Addax Petroleum. Sinopec spent $7.5 billion so as to acquire petroleum reserves in Africa and the Middle East.

Chinese M&A Activity Forecast to Rise

M&A activity in China, in particular outbound mergers and acquisitions, is expected to increase according to a briefing by FinanceAsia.com. However, Chinese buyers are sensitive to political factors and to being perceived as overpaying. Therefore small and medium sized transactions are expected to dominate the market and companies may prefer making low profile deals or asset purchases with no public market valuation. The briefing also mentions that interest remains high in the natural resources, commodity and energy sectors from Chinese investors but with growing interest in the agribusiness sector.

Air China to Gain Higher Stake In Cathay

Air China is said to be increasing their stake in Cathay Airlines (from 17.5% to 29.9%) so as to be able to expand into Hong Kong. Air China will reportedly spend $813 million to complete this transaction.

Saab Deal Inked

Its official. GM is selling Saab. GM and Swedish sports car maker Koenigsegg have inked a deal. It is expected that the transaction will be finalized this year.

Foreign Demand for US Assets Rebounds

Despite Russia and China having trimmed their US assets, there has been an increased demand to gain American long-term securities holdings. The US Treasury Department reported that foreigners purchased $90.7 billion more in long-term U.S. securities than the Treasury Department sold in June. This is a significant change from May when the department sold $19.4 billion more than was purchased by foreign countries and investors. This shows that there may be increased confidence in the US economy from abroad than there previously has been.

Volkswagen to Raise $5.7billion for Porsche Acquistion

Volkswagen said that it would work to raise approximately $5.7 billion to acquire a stake in Porsche. Volkswagen is currently planning to acquire a 42% stake in Porsche's sports car division. Porsche said on Friday that Qatar Holding LLC will acquire 10% of the Porsche holding company's shares. This move would thus free up more than €1 billion for Porsche. Porsche has already noted that it has decided to write down the value of its options structure so as to prepare for the sale.

Republic Wins Frontier

Republic Airways Holdings won a bid to gain Frontier Airlines. Republic paid $108.75 million for the airlines. Frontier had had another bid from Southwest Airlines worth $170 million but ultimately turned down the offer because of union conflicts. Frontier had filled for Chapter 11 back in April of 2008 and had to be auctioned off.

Tougher Anti-trust Regulations for M&A Deals

Since the Obama administration took office it has been noted that scrutiny of major M&A deals has become a lot tougher and more restrictive. This happens as M&A is looking to make some headway, thus possibly causing some slow down. These changes come after a series of deals were let through by the Bush administration that came under fire, like the merging of Sirius and XM Radio as well as Whirlpool Corp and Maytag.

M&A Activity Should Increase in the Private Sector

It is being predicted that American M&A activity will begin to skyrocket sometime between now and the next year. Dennis Roberts of the McLean Group attributes this rise to four factors. He tells that the burnout in the ranks of baby-boomer business owners, rapid technology advances, long-term growth in the appetite of foreigners for United States companies and a buildup of cash at the U.S.’s private equity groups will converge to help the M&A market. We're hopeful that he's right, such a boom could be of great help to the economy.

Hope for the EU

France and Germany are showing signs of growth, prompting hopes that the EU will recover quicker than expected. Both countries saw growth of 0.3 percent from the previous three-month period, something that surprised most experts who believed that the economies would continue to fail. France's finance minister has credited their "cash for clunkers" program as one of the major reasons that the economy is starting to improve.

China’s Interior Development and Competition to Low-Cost Asia

From our friends at CH-ina.com

The Inland Coast –
China’s Interior Development and Competition to Low-Cost Asia

The recent crisis has made it even more important for China to depend less on the rest of the world for growth and to develop quickly the interior markets. While exports contribute to only 20% of China’s GDP, export growth accounted for half of 2008’s economic growth.

Yet, due to difficult or expensive logistics, over 90% of China’s exports are produced within 250 km of the seashore. These exports, the foreign investments and the know-how that foreign enterprises brought have been the growth engines of the coastal regions of China. Meanwhile, the interior has mostly developed through infrastructure financed by the government and consumption growth, partially fueled by the income that migrants working on the coast send back home.
As a result, disparities between regions are quite extraordinary. Shanghai’s average salaries are twice those of neighboring Anhui province. Minimum salaries in Hefei, Anhui’s capital city, are 35% lower than those of Suzhou (the international manufacturing center of choice, next to Shanghai).

One could imagine a development model where the coastal areas’ continued growth generates enough wealth to drive the development of the interior. However, in this case the wealth gap between regions will not be reduced, or will even increase. Besides, China’s middle class is only about 2 to 300 Mio. strong. To count on their consumption to raise the living standard of the Inland’s 800 Mio. low income citizens will take too long.

On the other hand, the direct Inland’s development is also an opportunity to maintain exports levels: while the coast has become expensive, minimum wages in Anhui and Hebei (the Chinese provinces along the Yangtze River West of Shanghai) are competitive with those of Indonesia.
Besides, Vietnam’s minimum wages are catching up with this region’s too. This is mainly due to very high inflation in Vietnam in 2008 (23%), and an expected 10.5% price increase in 2009 while China’s CPI will stay around zero this year. As a result, Vietnam’s labor cots are not low enough to give it an important production competitive advantage, particularly when one takes into consideration China’s superior supply chain. (The range of components and materials available domestically is close to what is available in Europe. Additionally, their quality/price ratio is most competitive.)

To make good on the opportunity, large container ports are being built along the Yangtze River that will make shipping of goods almost as convenient as they are from the coastal cities. Wuhan (capital of Hebei) already has one while Chongqing (1’500km inland!) is building its own.

In addition, to ensure access to all the soft skills (management, knowledge of international markets and cultures, financial and insurance services), Shanghai, at the mouth of the Yangtze River, is building one of the largest people transportation hubs in the world. It will bundle conventional and magnetic levitation very high speed trains (up to 400 Km/h), 5 metro lines, and the newly expanded Hongqiao airport. The hub will start operating for the World Expo in May 2010 and, by 2020, it is planned to handle the extraordinary amount of 400 Mio. passengers per year!

In addition to linking Beijing to Shanghai by rail in under 5 hours, Chengdu (in the far west of China, at the end of the Yangtze valley) will be reached in just 7 hours. Hefei and Wuhan, now too far to be considered as part of the Shanghai area, will be within 3.5 and 1.5 hours reach of Hongqiao. The new trains will allow day trips and actually make these large cities of almost 5 and 7 Mio. inhabitants part of the Yangtze Delta. Alone, these two Yangtze River capital cities and their provinces will add populations of 130 Mio. inhabitants to the Greater Shanghai area.

As it develops, the Yangtze valley will add an inland coast of more than 1’500km, with Shanghai as its bridge head to the world.

In the coming decade, the Shanghai Greater area will become a formidable region gathering populations the size of the USA or Western Europe and be able to compete internationally both in the low-cost and high-tech exports.

Watch out for China’s interior development and the new opportunities that the Inland Coast emergence will bring in the coming years!

Nicolas Musy

US Deficit Getting Bigger and Bigger

The United States deficit grew $180 billion in July. This brings the fiscal year-to-date deficit to $1.267 trillion, which is triple what it was this time last year.

American Labor More Efficient than Chinese?

According to Bill Waddell, Apple should be having a hard time justifying why they would rather manufacture IPod's in China than in the States. Although the cost of labor is obviously skewed in China's favor, technology and time efficiency would make it so that it is actually more efficient both time and money wise for Apple to simply manufacture IPods in the United States. So what other companies are out there, using cheap Chinese labor when they could be making more of a profit by just manufacturing in America? Is this an adequate way of explaining why labor should be brought back to the States?

DSME to Buy Composite Tech's Turbine Business

In a deal worth $46 million, South Korean company, Daewoo Shipbuilding & Marine Engineering Co., Ltd has bought nearly all of the operating assets and operating liabilities of DeWind Inc

China Attempts to Gain Canadian Royalties Inc.

Recently China has been making just about every effort possible to gain an ever growing amount of natural resources. We learned today that state-controlled Jilin Jien Nickel Industry Co. Ltd. launched a $148.5-million unsolicited takeover bid to gain control of mineral exploration company, Canadian Royalties Inc, so as to increase their resource supply.

China Continues It's Recovery

Amid financial stimulus plans, China's trade and factory output is rising. Statistics show that retail sales, exports, Chinese steel output and investment in factories and other fixed assets also rose also rose in July. Economic growth increased in July by 7.9%, showing that China's stimulus package is working despite fears that it would just create more economic bubbles.

Economic Forecasting: Oil

It is a relatively common belief that the global economy will turn around by the end of 2009 with oil helping the rebound along. However in some opinions the oil business doesn't look to be at its finest right now. Merill Lynch expects that the demand for petroleum will fall 5.2mm b/d below capacity this year. It is also expected that refining will continue to be a low margin buisness, as the world has a much larger oil refining capacity than needed and we currently have 85 million barrels worth of oil products sitting in floating storage. There is a spare capacity of 20% this year as opposed to the 5-6% of years previous. So maybe it is not looking so rosy for the oil industry.

LS Power Associates to Buy Greater Share in Dynergy

LS Power Associates is expected to announce today (8/10) that they will be purchasing 9 power plants from Dynergy. LS Power will give Dynergy $1 billion and $500 million worth of shares that LS Power already had in Dynergy. They will also now own 15% of the energy company.

Barnes & Noble to Buy

Barnes & Nobles announced a deal stating that an agreement has been made to buy Barnes & Noble College Booksellers from the company's Chairman. The deal is worth $596 million and Barnes & Nobles expects that the deal will increase earnings for this year by 30-35%.

Chinese Academy of Sciences to Sell Stake in Legend Holding

The Chinese Academy of Sciences announced that it is looking for a buyer for 29% of the shares of Legend Holding which is the parent company of Lenovo. They are looking to complete a deal by early September and are hoping to earn $404 million from the sale. They believe they will sell to another Chinese company.

M&A Activity Reaches All-Time Highs in Mining

Proposed takeovers in mining for the quarter a currently valued at over $122 billion. This is the highest total value for the mining industry in M&A for a quarter in years and more than twice the second-highest total value of $57 billion from the first quarter of 2008.

China's New Bullet Train

China is currently working on what could be the most technologically advanced transportation system ever. The country is spending over $50 billion to create a new bullet train system and will lay down over 16,000 miles of track. A project like this will not only boost travel but the Chinese economy as they are currently employing over 110,000 people on the project and it will greatly decrease the amount of time it takes to travel between China's major cities.

Fall of The British Empire

Britain has seemingly lost its standing in the world and is becoming increasingly insignificant in world affairs and in the world economy. Newsweek suggests that for some time now England has been the pawn and sidekick to the United States and now the U.S. is in decline England no longer has a hold, especially as emerging nations are giving little thought to the British. Is there any hope left for Great Britain or will they merely become insignificant?

Big Banks Still Failing

The United States may be hitting the bottom of the recession and may be on the turn around to get above water soon but the U.S.'s big banks have yet to come that far along. The FDIC has listed 305 banks as being problematic and Bankrate.com has given two dozen banks with $5billion+ in assets a one-star rating for soundness and safety, three banks have stated that they are close to collapsing. 69 banks have already failed this year. It will seemingly take a lot longer for banks to follow the trend and begin their recovery.

Russia's Lending

Russia's central bank annouced that they would be reducing their refinancing rates by a quarter of a point from 11% to 10.75%. They would also reduce their repurchase rate on bank loans to 9.75% from 10%. The government is currently attempting to encourage lending and consumer spending without increasing inflation after the annual inflation rate rose to 12% in July.

BRIC Nations Gain and American Debt

The emerging BRIC Nations are continuing to build up steam as they further prove their future economic dominance. Their reserves now make up 43% of the world's total. It is estimated that these countries will expand 1.3% this year and 4.5% next year. Meanwhile the States continue to pile on debt. The country's debt currently makes up 79% of their GDP. California is currently dealing with upwards of $60 billion worth of debt, that they are slowly selling off in the form of IOUs.

Italian Economy Continues to Contract

While many of the world's economies are showing signs of improvement the Italian economy is continuing its downward spiral. Although the economy is not contracting as much as it has been recently this is the 5th straight quarter in which there has been no improvement for the Italians and unemployment is at a 4 year high. During this recession there has been little want for Italian goods and exports and the country's stimulus plans appear to be failing.

Chinese Government to Closely Monitor Lending

In the hope of preventing an increase in credit risk and the development of new asset bubbles China is studying stock-market variabilities and carefully monitoring the lending industry. The country has a number of ways to control the flow of money and is therefore able to manipulate various stock trends.

National Express Puts Up Deadline

England's National Express railroad franchise has set up a date by which an offer has to be on the table to sell. The company has decided that all offers must be in place by September 11. Currently there are two bidders looking to buy.

20% Decrease in M&A Activity This Year

Since this time last year M&A activity has decreased by approximately 20% and these deals are worth a lot less that they were. The total value of trades is down 38% from 1.3 trillion last year.

North Pacific Group Selling

The North Pacific Group has just signed a letter of intent to sell it's stocks to a private equity firm that has to this point remained unnamed.

Financial Crisis Takes Toll on India's Religious

Most of us don't stop to think twice about Christianity in India, but with the current financial crisis and the toll it has taken on Western religion, India's Christian population has suffered. The struggling religion has seen a major decrease in mass outsourcing as well as a decrease in funding and revenues. Considering the Christian faith in India is relatively small this could have a severe impact on the ability for the church to continue there.

Arkema to Buy Dow Subsidiary

Arkema announced that it was to purchase an acrylic acid and esters plant from Dow Chemicals for $50 million.

China's Job Crisis

When we think about the instability in the job market many of us recognize the problems facing the United States and Europe, seldom do we think of China as having a similar issue. China and several other Asian countries are supposed to be the solution, picking us up out of the financial crisis. However, China is dealing with its own unemployment crisis. With the decreased demand of Chinese exports many companies are downsizing. Although the Chinese unemployment rate of 4.3% is well below that of the United States and the EU, the rate is still severe for the nation.